When markets are highly volatile — especially when they drop and you see your portfolio dip — it’s natural to want to make quick changes to your 401(k) account. Before you do, step back and consider your goals as well as when you will actually start using the money in your retirement account.

The Importance of Time in Reaching Your Goals

The recent market plunge is more than a little nerve-wracking and has likely reduced your 401(k) account balances. Stocks (equities) are a riskier asset class, but have historically outperformed the lower-risk asset classes of bonds and cash. Keep in mind, this is a long-term view. It can take years to overcome deep downturns in a market.

Beware of the Temptation to Time the Market

It’s not uncommon for people to move monies from stock funds to a money market or U.S. Treasury fund after a stock market drop, thinking they will get back in when the market “settles down”. This tactic can lead to poor returns as you may be selling at a low and buying at a high, making your situation worse. No one really knows when the market has peaked or hit bottom. And markets can move up or down quickly, as we’ve seen in the past week. If you are out of the market during a fast, steep increase, you will miss the gains.

Pick a Portfolio that Helps You Stay on Track

Difficult times can help you determine what type of investor you truly are. During good times it’s easy to be an aggressive investor, but not so easy in bad times. Do take a look at the model portfolios ShareBuilder 401k offers. They consider how many years until you will use the funds and how much risk you are willing to take on. This can help you reach your goals and stay on track during rocky times. In general, if you are within five to ten years of retirement, you are typically better-served with more conservative portfolios that have a higher percentage of bond and cash funds, while younger investors often select a portfolio that has a greater percentage of stock (equity) funds.

We hope you find this note helpful during what has been a turbulent time in the financial markets. Please consider reading our Saving Smart for Retirement guides to get additional insights to help you build for the retirement you envision.

Wishing you success,
Stuart Robertson
General Manager
ShareBuilder 401k

Investments are subject to risk. Investments in bonds are subject to interest rate, credit, and inflation risk. Diversification does not ensure a profit or protect against a loss in a declining market.

401(k) plans are: Not FDIC insured · Not Bank guaranteed · May lose value

© 2008 ShareBuilder Corporation. ShareBuilder is a registered trademark of ShareBuilder Corporation. Advisory services are provided by ShareBuilder Advisors, LLC, a registered investment advisor and a subsidiary of ING Bank, fsb.